Page 101 - STRATEGY Magazine
P. 101

 sector remains low and long-term financing is still scarce, but development banks are playing an increasingly important role in broadening access to financing.
Prudential oversight has improved signifi- cantlyinrecentyears,andtheIMFdeems the financial sector safety net to be “solid.” Banco de México (Banxico)—the central bank of Mexico—has a robust operating framework, deposit insurance conforms to international best practice, and liquidity reg- ulation has improved. All of this bodes well for the financial sector’s ability to weather any storms.
Extending credit to the private sector in a
large informal economy is a challenge. Jorge
Kleinberg Druker, the Director General of
microfinance company Te Creemos, points out that “formal banking is not accessible to a large segment of our country.” He hopes that Mexico can change its rules “little by little—in the rule of law, politics, corruption, and fiscal disincentives”— in order to include more people in the formal economy. There is debate, he acknowledges, about whether microfinance helps people or not; the lending practice brings high operating costs but is typically cheaper than alternative options. It offers cli- ents another tool through which they can progress.
SOVEREIGN SLIPPAGE
The Governor of Banco de México, Agustín Carstens,
has often noted that the country’s solid macroeconomic framework and ambitious structural reforms have made the
Mexican economy resilient to many ex- ternal shocks, including weak external demand and the stagnation of global trade that came in the wake of the 2008– 09 global financial crisis.
Despite this resilience, and the strength of the formal banking system, signs of potential turbulence emerged last year, as investors became wary of the outlook for Mexico’s public sector fi- nances. The major rating agencies shift- ed the outlook on their ratings of Mexi- can sovereign debt to negative, warning that widening fiscal and current account deficits indicated a weakening in mac- ro-fundamentals. Manuel Sánchez, Dep- uty Governor of Banxico, was not alone
in pointing to the disadvantageous international environment and risk of further volatility and called for Mexico to buttress its macroeconomic fundamentals. The government responded promptly, launching a fiscal stabilization plan of spending cuts and a transport fuel price hike. This plan is expected to hold the government deficit to around 3 percent of GDP this year and next.
SEND THE MONEY HOME
A key source of funding for the capital account is remittance inflows from Mexicans working overseas, and here the uncer- tainty engendered by the Trump phenomenon may actually give a short-term boost. Total remittances for 2016 reached an all-time high of US$26.97 billion, 8.8 percent more than in
Banks and households are relatively well placed to withstand financial shocks; the banks’ low levels of foreign currency lending helptoinsulatetheirbal- ance sheets from foreign exchange risks, and house- hold debt levels equaled just 15 percent of GDP at the end of 2015.
 ASSESSMENT AND RECOMMENDATIONS
MONETARY POLICY HAS SUCCESSFULLY ANCHORED INFLATION EXPECTATIONS
Figure 5. Monetary policy has successfully anchored inflation expectations
% A. Inflation and policy rate % 96
3
B. Inflation target band and expectations
Inflation expectations Inflation target
  8
7 64 5
4 32 2
1
Headline
Core 5 Policy rate
   1
02007 2008 2009 2010 2011 2012 2013 2014 2015 2016 02007 2008 2009 2010 2011 2012 2013 2014 2015 2016
  Note: The blue shaded area represents Banxico’s inflation target band of 3% ±1%.
Note: The blue shaded area represents Banxico’s inflation target band of 3% ±1%
Source: Banco de México. 1 2 http://dx.doi.org/10.1787/888933444425 Source: Banco de México
volatility in financial markets, and the slowdown of the US economy. Banxico has therefore
strategybg.com 99 enhanced its communication, focusing on the possible pass-through from the depreciation
of the peso To continue building its credibility the bank should carry on acting timely and































































   99   100   101   102   103